Saturday, 28 May 2016

United Airlines is canceling flights to Nigeria as the dollar crunch bites

Chicago-based United Airlines is the latest casualty of Nigeria’s economic slowdown as the company has announced that it will stop flights to the country after June 30th. A United spokesman cited a “downturn in the energy sector” as well as difficulties with repatriation of its dollar profits amid tight foreign currency controls by the Nigerian government.

United, the third largest US carrier by revenue, currently flied from Houston to Lagos everyday.

Since the turn of the year, Nigeria has struggled with dwindling foreign reserves as a result of a drop in the price of oil, its main revenue source. To curtail outflow of foreign exchange, the government put in place strict controls, including limiting repatriation of dollars out of the country. Airlines operating in the country have been badly hit by the policy which has left Nigeria owing airlines, including United, around $575 million according to International Air Transport Association.

The airline’s decision to cut flights in a market where government’s policies, including currency controls, have affected its business is not without precedent. In 2014, United reduced its Venezuelan operations by 43% in similar market conditions. The airline’s withdrawal from Nigeria weakens the countries strength as an aviation hub in Africa as it is now left with only Delta Air as the remaining major international carrier flying direct to Nigeria from the United States.

The news is also likely do more harm to Nigeria’s poor reputation as a conducive business environment. It already ranks 20 places from bottom in the World Bank’s most recent Ease of Doing Business report.

The effect of president Muhammadu Buhari’s economic policies will once again be questioned as he closes in on completing his first year in office this weekend. The president’sfirm refusal to devalue the Nigerian naira, despite a steep fall in value against the dollar, plus bans on imports of several items has seen investors grow increasingly cautious about operating in the country. The impact of the policies was particularly felt in the first quarter of 2016, as the economy shrank for the first time in two decades with analysts warning of an impending recession.